Sleeping Giant

Today we're talking about India. Of course, India isn't sleeping. Its economy is growing at an incredible clip, but its search market has yet to impress. India sill lags behind the world at large in search activity. It contains over 15% of the world's population, but executes just 2% of the world's searches. (Source: Market Watch) What I find striking about these numbers is the great potential for internet growth in the country, as well as the great opportunity for companies like Google (with 81% of India's search market share) that are well positioned to reap the benefits.

Top Search Properties in India
June 2008
Total India -- Age 15+, Home/Work Locations
Source: comScore qSearch

                                                  Searches      Share of
                                                    (MM)        Searches
Total Internet                                     1,242          100.0
Google Sites                                       1,011           81.4
Yahoo! Sites                                         117            9.4
Ask Network                                           24            1.9
Microsoft Sites                                       22            1.7
Rediff.com India Ltd                                  18            1.5
FACEBOOK.COM                                          10            0.8
People Group                                           9            0.8
CNET Networks                                          5            0.4
Wikipedia Sites                                        5            0.4
AOL LLC                                                3            0.2

First of all, I'm assuming that continued internet penetration in India is all but inevitable. Like any social network or communication device, the internet becomes more valuable and useful as more people use it. Facebook, which captures nearly all of the 18-25 demographic in the US, is several times more valuable to its owners and useful to its users than a comparable networking site that happens to have far fewer users. Similarly, a fax machine is just a box of plastic and metal until enough people make sending faxes a real possibility. To use a cliché (but a good one) the tipping point for internet usage in India could come relatively soon, and for reasons beyond the aforementioned network effects. (Would anyone doubt that the economic growth will lead to more computers and internet infrastructure?)

When the internet growth accelerates, one could also expect the search market to accelerate. (I challenge anyone to decouple the internet market from the search market.) As I have said before in this blog, Google has several markets like India, in which it has incredible brand awareness and market share, but has yet to experience stellar revenue numbers. When these markets do decide to take off, it's only natural that Google will stand to benefit.

It's for this reason alone that Google's organic revenue growth (which has dwindled ever-so-slightly) is not in trouble. If any one of Google's investments in India, China, Brazil, or Russia starts kicking in, you'll see the robust organic revenue growth you had always before expected from the search giant. This growth might not come in smooth fashion, but Google has the brand positioning in enough countries to fuel growth in the long term as these markets mature from their current states of infancy.

I don't mean to overestimate Google's growth opportunities. The law of large numbers will catch up with Google. To sustain 30% growth in the long term is quite nearly impossible. However, Google is still growing at an impressive rate when the ad market is showing glaring signs of softness. Google trades at a trailing P/E of just over 32, so the market seems to be somewhat cautious on the company, which is something we haven't been able to say in a long time. Coming out of the economic downturn, Google will have the force of increased market share behind it and will see its revenue growth accelerate once again. Whether this will happen in the next few months or the next few years, I do expect to see this earnings jump and a huge jump in the stock price.

...But I could be wrong ;)

Should we be scared of Knol?

I know it sounds pretty benign when compared to Google's ability to save search data and peer into your home's windows from its "street view," but I see the new Knol as perhaps the #1 reason why we (as both web entrepreneurs and casual internet users) should fear Google.

For nearly Google's entire history it has shied away from being actual content creators or owners. Google has lived up to its mission to organize the world's information because it has had no conflict of interest when it came to ranking content for search results. Sure, it would give its own services good search results when it was warranted, but Google never had a content site of which it was the owner. Google could push its Blog Search to the homepage and suddenly become #1 in blog search, but search was still a way to channel traffic away from Google sites, and not to keep the traffic in the Google network.

It has been very important for Google to maintain this neutrality, lest it squander its good--yet vulnerable--image as an impartial director of web traffic.

Now Google is creating a user-generated content site, Knol, which will slowly chip away at the company's image as an impartial tech company. Instead, many people will start viewing Google--perhaps more fittingly--as a media company. Sure, Google still isn't creating the content; they're just creating the platform. But Google will become the effective owners of that content. Sure, users will be able to earn revenue from ads placed by their "knols," but they will be hosted on a Google site from which the company will reap a share of the revenue. (The actual revenue split remains a secret.)

This new potential revenue stream might be good for individuals who have a lot of information to convey, but what about the smaller players who already have their own content sites? Aside from the WebMD's and the About.com's, there are hoards of small-time content publishers who could suffer steep decreases in traffic if they have to compete with another web authority on their topic. Wikipedia already tattoes the first page of Google search results for just about everything subject known to man. Imagine what will happen if there's yet another content behemoth pushing other content to the bottom of the search engine barrel. (This statement doesn't seem melodramatic when you consider how seldom people click on anything but the first few search results.)

You may be asking: why assume Knol will get favorable search results? I don't think Google will intentionally push its own content to the top of the search results, but that will be end result anyway. It just so happens that Google's search algorithms favor content from larger websites that have a lot of backlinks. As a Google site, Knol will have the benefits of the PageRank that google.com passes onto it. (Has anyone seen a site with a PageRank of 10 other than google.com?) Google will have no choice but to place its knols at the tops of the pages.

Sure, this might be a great opportunity for people to create knols and suddenly become the web authority on a topic that is fairly competitive. I am all for leveling the playing field and letting new content rise to the top if it's top quality, but I have a problem with having to play Google's game just to take advantage of this opportunity. Plus, just because content is on a Google site, that doesn't mean that it's any better than the content of a person or organization of lesser financial resources. If someone wants to be an authority on Type II Diabetes, she should be able to do it on her own domain, and not have to appease the Google Gods with a well-written "knol."

To summarize, the main director of web traffic should not be the creator/owner of the web content. I guess we'll have to see how everything unfolds in months and years to come, but Knol could pose a huge conflict of interest for Google as an impartial trustee of web traffic.